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This Week…
Four major central banks.
Four rate decisions.
This is going to be a busy week.
The most important central banks, of course, will be the Fed and the Bank of England (BoE); this is followed by the Swiss National Bank (SNB) and the Bank of Japan (BoJ).
Kicking things off will be the FOMC rate decision on Wednesday at 6 pm GMT; economists and markets widely expect the Fed to hold the line at the current Fed Funds target range (5.25%-5.50%). The quarterly FOMC projections and the dot-plot will accompany this meeting, which, given the market pricing a no-change, will be what most market participants monitor this week.
It is unlikely that the Fed’s so-called dot-plot will change by much at this meeting, meaning the Fed will perhaps leave the additional rate hike on the table for this year, particularly in light of recent inflation numbers and the resilience in the US economy. Many desks claim this will be a ‘hawkish hold’, thus leaving the door ajar for further policy firming if necessary. It will also be interesting to see how many rate cuts are forecasted for 2024, as well as the updated Fed forecasts for GDP and unemployment.
The US dollar, therefore, will be widely watched this week; according to the US Dollar Index, we ended a ninth week in positive territory, up +0.3%. The buck is in an interesting position right now, benefitting from resilient economic conditions, attractive yield and safe-haven demand, hence its continued outperformance of late.
Thursday welcomes the SNB and the BoE at 7:30 am and 11:00 am GMT, respectively. Both central banks are expected to raise rates by 25bps this week. Should the BoE press forward with another rate hike, the vote will be interesting to watch and may be split. As a result, this may see an upside spike in the GBP on the back of the rate hike, but it will likely be short-lived, particularly if there’s less commitment from the MPC members in the vote.
Also, out of the UK—a day ahead of the BoE rate decision—we’ll receive the latest UK inflation numbers for August, which, as of writing, the median estimate shows that year-on-year headline inflation is expected to rise to 7.1% (up from 6.8%), with core inflation for the same period estimated to ease slightly to 6.8%, down from 6.9%. Sterling finished another week underwater against the US dollar last week and is poised to shake hands with key weekly support from $1.2331.
Friday will see the BoJ policy decision at 3 am GMT, which is anticipated to hold pat on rates; therefore, it is doubtful we’ll see much here. We also will see the eurozone, UK and US global manufacturing and services PMIs later Friday, all of which (aside from US services) remain in contractionary territory across the board and are projected to remain so for September’s release.
G10 FX (5-Day Change):
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